Carrizo Oil & Gas Production Slowed by Gathering and Service Delays

Carrizo Oil & Gas wells in the Eagle Ford continue to meet or exceed expectations, but delays in bringing on the company's gathering system held gas production levels below their potential. Service company equipment problems also led to delays. Even with third quarter delays, Carrizo is poised for strong Eagle Ford growth in the fourth quarter. The company has a corporate wide objective of reaching 5,000 bbls/d of oil by year-end. That's roughly double the company's average in the third quarter. South Texas wells will play an integral part in the company reaching that target.

The Gas Authority of India, Limited (GAIL) is a 20% working interest partner with Carrizo across over 20,000 net acres in the Eagle Ford. The Carrizo - Gail JV was announced at the end of September, 2011.

Production performance from new and recently completed wells in all our areas of operation continues to meet or exceed our expectations, as we brought on five gross Eagle Ford Shale, two Niobrara Formation and eight Barnett Shale wells in the third quarter. The largest contributor to our short-fall came from lower than forecasted production from our non-operated Barnett Shale properties and a steeper than anticipated decline in our approximately 10 Mmcfe per day of Gulf Coast production. Delays in the completion of gas gathering systems in the Eagle Ford and Marcellus Shales also negatively impacted our gas levels. Oil was within the range of our expectations despite delayed Eagle Ford Shale completions caused by a service company's equipment problems.

"Our expectation for the fourth quarter calls for a large increase in Eagle Ford Shale production as 13 gross new wells are scheduled to come on. Our first operated Marcellus production began from two gross wells in mid-October and gas production should benefit from the addition of three gross wells in December, all from Susquehanna County. Niobrara contribution should increase with the addition of two gross new wells that came on the last day of the third quarter and one additional gross well that should come on in December. The combined effect of these new wells, offset by the volumes associated with the interest in the Eagle Ford Shale properties transferred to GAIL (INDIA) LIMITED in our recently announced joint venture, leads to our guidance for in the quarter to range between 137 and 143 Mmcfe per day. We continue to believe that we will achieve our previous goal of 5,000 net barrels per day of oil production before the end of the quarter."

Read the full press release at crzo.net

Equipment Delays - Margin Pressure in the Eagle Ford - Plains All American

Equipment delays in the Eagle Ford have slowed work on Plains All American's pipeline project, but the development is still on schedule to be fully operational in Q1 2013. The pipeline will provide 300,000 b/d of takeaway capacity into the Corpus Christi refining markets and connect to marine transport options delivering to other Gulf Coast markets. Plains All American also touched on the fact that pipeline and midstream company margins in the Eagle Ford will compress over time. At their estimates, pipeline capacity might double production expectations in the play. If that is the case, there will be downward pressure on margins. Unless production volumes continue to outpace expectations, that is a natural progression in midstream business cycle.

The company will also begin moving crude oil volumes away from trucking in favor of pipelines. Pipeline yield lower margins than many of the trucking and logistical arrangements in the play today.

We've had a little bit of equipment delays on the Eagle Ford and right of ways, and so that's caused a little bit of that to shift into the first quarter. But overall, we are on track, we think, to still bring enough pretty much at the point in time when we target to bring it online. We'll just have to work a little bit harder toward the end, but everything is proceeding right on schedule.

Will margins contract over time? - I think unless volumes significantly outperform what current expectations are, I think the answer is there will be some margin pressure with the passage of time. Clearly in today's environment, there's more volumes than there are takeaway capacity, but there's a lot of projects that are being built. I haven't done the tallies lately, John, but I think there were 7 different pipeline projects. And if you total them all up, we think it could be about double what the projected production capacity is expected to be. So this pure business 101 tells you, at some point in time, you're going to put a lot of pressure on margins. I think what we tried build into our expectations internally and what we're trying to manage externally is that clearly, we're making some great margins in certain areas. Trucks are very valuable. Truck drivers are very valuable today. And what we try to do is make sure that we use those to our advantage when we're trying to base load our pipeline project. And so we're probably making less than we could be making with certain customers. Because they're willing to support our pipeline project, we're willing to make sure their crude comes out of the market. ..............you'll see volumes that are going to be shifting from our Supply and Logistics business over into our pipeline business. By definition, those are -- that's the cheaper form of transportation. And so the question really at that point in time is, do we -- if the business is in parity, then we'll end up parking some trucks. We're moving on to different parts of the U.S. If the answer is, by moving those barrels over to the pipeline, we free up trucks that can then reach out to grab more remote barrels in South Texas, then that's probably incremental opportunity than what we perhaps got built into our own expectations during the years. If you roll the clock out 3 or 4 years at some point in time, either volumes have to continue to go up or all these -- some of these pipeline projects have to not yet build or we're going to end up with margin compression.

Read a transcript of the call at seekingalpha.com

El Paso Corp's Gathering System Expands to Allow Production Growth - Q3 Ops

El Paso Corporation recently announced it will be acquired by Kinder Morgan. That means El Paso's Eagle Ford assets might be on the market soon. In the mean time, the company reported results from the third quarter of 2011. The addition of a gathering system in the area will alleviate constraints and forth quarter production is expected to jump to 17,500 boe/d gross from 10,500 boe/d gross in Q3. The midstream group's gathering system will have capacity for 150 mmcfd and 80,000 bbls/d by year-end 2011. 

Eagle Ford oil production growing rapidly with completion of natural gas  facilities

El Paso's Midstream Group has completed the natural gas system for the EF Central area, which eliminates what had been a major production constraint caused by limited natural gas takeaway capacity. Gross daily Eagle Ford production for the third quarter 2011 was approximately 10,500 BOE/d. Fourth quarter 2011 gross production is expected to rise significantly to 17,000 to 18,000 BOE/d. El Paso expects to operate three rigs in this area for the remainder of the year.

The Midstream Group (Midstream) has successfully completed its natural gas gathering facilities in the area in south Texas. The system includes 83 miles of pipeline with a capacity of 150 MMcf/d. Also, Midstream is developing a 68-mile oil pipeline network with a capacity of 80,000 Bbls/d in the area, which is expected to be operational before year-end. Midstream reported that it did not receive adequate commitments for its Marcellus Ethane Pipeline System (MEPS) project to proceed at this time.

Eagle Ford Barges Taking Crude to Houston - New Orleans - Port Arthur

Barges are being utilized to move Eagle Ford crude oil to refining markets in Houston, New Orleans, and Port Arthur. Kirby Corp, a company that operates inland barges, said yesterday that as many as 140 barges across the U.S. are being used for crude oil. (That's in all areas and not just the Eagle Ford). The 140 represents a ten-fold increase from a decade ago. Moving oil on barges had become an almost non-existant business until plays like the Eagle Ford began producing oil in areas without spare pipeline capacity. Without pipelines, you begin looking for the next best thing. Utilization rates for trucks, tanks, and barges are at modern day highs.

Some of the Eagle Ford movements will be ultimately be kind of medium term" said Pyne, adding that pipelines under construction will eventually replace some of the barges as a means to carry crude from the Eagle Ford.

"But I do think that the the volume coming out of the Eagle Ford and Canadian crude that is being exported to Baton Rouge is sustainable."

Shale oil from the Eagle Ford deposit in southeast Texas has come on strong this year, rising to 272,000 barrels per day (bpd) in June from 70,000 bpd in April, according to energy consultancy Bentek. Some experts say it could top 400,000 bpd by 2013.

Read the full news release at reuters.com

ConocoPhillips 3Q Eagle Ford Growth - Truck Constraints and Well Costs

ConocoPhillips announced third quarter earnings yesterday (Oct. 26) and provided several Eagle Ford updates. The company averaged production of 31,000 boe/d with a 77% liquids cut. September production had risen to 36,000 boe/d, but included a loss of 10,000 to 12,000 boe/d related to third party trucking constraints. Without the constraints, production is approaching 50,000 boe/d. Conoco believes they will reach 100,000 boe/d by 2013.

In regards to the constraints:

There was a new trucking facility that was built in Eagle Ford...., but they really didn't move the needle that in terms of increasing capacity. We have talked about building pipeline gathering system, kind of a trunkline to get us to a liquid trading point out of Eagle Ford. We think that will be done the middle of next year. But we've got a lag of 10,000 to 15,000 a day of Eagle Ford that we can't get out just because of constraints.... That will continue until more infrastructure is built up in the area. So I guess it's a good problem to have, to be producing more and these wells to be more productive than what we thought they were, and we are investing in additional infrastructure in that area.

ConocoPhillips current backlog of wells isn't related to completions or fracking, but simply hooking the wells into gathering systems. The company has three dedicated frack crews that have been more than enough to keep up with the rig count. Trucking condensate is the major backlog in bringing wells to production.

The company operated 15 rigs in the quarter and plans to grow its Eagle Ford rig count to 16 by year end.

The average 30-day well rate is still running around 1,400 BOE. We've got -- we've initiated pad drilling. We've got some details on the -- let's say more of an E&P type of approach to Eagle Ford that we could probably run you through, but I don't have EURs or decline rates on Eagle Ford for you.

Well depth is somewhere between 16,000 and 19,000 feet. We're running 3,500 to 5,800 laterals. And on average, about 15 stage fracs. I think well cost that I've seen, drilling and completion are probably in the $6 million to $8 million per well range.

Read the company's press release at conocophillips.com